HDFC Group Says Yet to Consider Merger Plan

Mumbai: HDFC chairman Deepak Parekh on Monday termed the speculation about a merger between the mortgage major and its banking arm HDFC Bank as premature but said that the entities may look at the possibility if it is a "win-win" situation.

"Both the companies' boards have not considered it and at the appropriate time if it is necessary and beneficial to both shareholders, if it is a win-win, then we will look at it," he said while addressing company shareholders at the annual general meeting in Mumbai on Monday.

Keki Mistry, the vice chairman and managing director of HDFC, said such a move has "theoretical" advantages like savings on CRR (cash reserve ratio) and SLR (statutory reserve ratio) requirements - after the Reserve Bank of India (RBI) liberalised its policies last week - and putting the excess capital of parent HDFC to a good use.

"Because of the reduction in CRR and SLR on existing funds, yes, if you were to work out the numbers, probably it may be a little bit better but we will have to do the arithmetic. It is something which the boards will have to look at in the future, whenever that is," Mr Mistry said.

"Theoretically, if there is a merger, HDFC has an excess capital and that capital can be better utilized."

Speculation about a merger between the two entities has been rife after the RBI released norms exempting banks from CRR and SLR requirements for long-term infrastructure bonds, which also included affordable housing.

HDFC and HDFC Bank had been reportedly looking at such a possibility for over a decade and the introduction of the new norms will only act as a catalyst, according to analysts.

Addressing the media at the bank's first quarter earnings, HDFC Bank deputy managing director Paresh Sukthankar also said that as of now, nothing has been discussed but admitted to the advantages of merger.

Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an in principle approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.

"It's fair to say that the whole reserve requirement issue was certainly one of the major hurdles. Whether this RBI circular actually addresses that or not will also require fair amount of analysis," he told reporters, adding that the fine print will have to be studied.

At present, commercial banks have to park 4 per cent of their total deposits with the RBI without interest, and invest 22.5 per cent of the same in government securities or other liquid assets as a measure of solvency. No such demand exists on pure play mortgage lenders. With the latest RBI move, banks can enlarge their balance sheets by widening their mortgage business.

The last such reverse merger in the domestic financial space took place in October 2001 when the then infra lender ICICI decided to merge with its banking subsidiary, creating the largest private sector bank.

According to a report by the domestic brokerage IDFC Securities, if merged, the new entity will be second only to SBI.